We spent two years reviewing existing capital protection products and researching global best practice. We also asked advisers and investors what does and doesn't work for them. The result is BT's new capital protection product.

An option that can be used with a wide range of managed funds available via Wrap and SuperWrap, giving you the flexibility to tailor solutions to your clients' needs.

The investor is locked in for the term.

The investor is not locked in. Throughout the term they can make full or partial withdrawals, make additional investments, extend the term or turn off protection without incurring additional fees. You have the flexibility to adapt solutions to suit a client's changing circumstances and visibly demonstrate the value of ongoing advice.

Let's take a look at how Wrap Capital Protection works when you apply it to a managed fund on the Wrap or SuperWrap platform. This example is hypothetical and for illustrative purposes only. All diagrams are indicative only and not to scale.

Example:

You choose to apply protection to the whole of a client's $10,000 investment in an eligible managed fund. This can be either an existing managed fund or a new managed fund purchased with money from your client's Cash Account.

1. Select an Investment Fund

Choose a managed fund on the Wrap or Super Wrap Platform.
There are a wide range of managed funds that are eligible for protection.

Example:

You and your client choose to protect the $10,000 investment for a term of approximately seven years.

2. Set the protection term

Choose protection term.

Example:

Your client's minimum outcome is set at the amount of their initial investment of $10,000. The amount invested in the BT Capital Protection Fund is based on their investment Fund, protection term and minimum outcome.

3. Determine the minimum outcome

Your client's minimum outcome is established and a proportion may be invested in the BT Capital Protection Fund.

Example:

$2,000 is moved from your client's Investment Fund to the BT Capital Protection Fund.

A set formula is used to determine whether any unit price movement is significant to trigger a Rebalance.

Please Note: Your client's combined holdings in the Investment Fund and the BT Capital Protection Fund are referred to as your client's Protection Portfolio. So if you have $9,000 in your client's Investment Fund and $1,000 in the BT Capital Protection Fund, the total value of your client's holdings in their Protection Portfolio is $10,000.

Example:

If your client's Protection Portfolio increases in value from $10,000 to $12,000, their minimum outcome will increase to $11,000, capturing 50% of the growth in the value of their Protection Portfolio.

6. Growth automatically captured

The automatic growth capture feature occurs every three months during the client's protection term and can increase their minimum outcome.

Example:

If your client's minimum outcome is $11,000 but the value of their Protection Portfolio is $11,500 then they will receive $11,500 on the Protection Maturity Date.

7. Maturity date

Wrap Capital Protection is designed to ensure your client achieves at least the minimum outcome on their Protection Maturity Date. However the amount they receive may be more if their Investment Fund performed well over the protection term.

In order to provide the best possible advice to your clients, it pays to be aware of some of the finer details of Wrap Capital Protection.

Here are some things you may want to look at when applying protection:

1. Cost of protection:

The explicit cost for capital protection is 1.2% pa, with no upfront or cancellation fees*. However, there is also an implicit cost to being protected when clients' funds are partially invested in the Capital Protection Fund, which may not experience the same growth.

*Buy/sell spread may apply in relation to Bond Classes within the BT Capital Protection Fund. Additional fees in relation to the Wrap or SuperWrap platform may also apply.

2. Protection Terms:

Because a greater proportion of a client's investment is allocated to the BT Capital Protection Fund as they near the end of their protection term, there could be a negative impact on growth, particularly if markets rise. However, this allocation will be visible to both you and your client and can be adjusted through turning off protection or by extending the protection term.

3. Risk Exposure:

When your clients invest in the Capital Protection Fund, they will be exposed to some risks. While we have taken measures to mitigate risks, you should be aware of:

Credit risk to Westpac and Deutsche Bank, who are the underlying counterparties in relation to the BT Capital Protection Fund. These counterparties have been selected to perform their specific roles based on our assessment of their capabilities and strength.

Transaction execution risk if there is a delay or failure in placing or processing transactions for example if there is insufficient cash in the working cash account to complete a rebalancing trade, the trade might be considered a partial withdrawal from the Protection Portfolio. The easiest way to avoid this risk is to always ensure there is sufficient cash in your client's working cash account.

4. Minimum Outcome

If a client cancels Wrap Capital Protection before the end of the term, they will receive the value of their investment holdings (i.e their Protection Portfolio) at that date regardless of the Minimum Outcome (and may be lower than the Minimum Outcome). While the Minimum Outcome is only offered at the end of the term, clients may still have benefited from any rebalancing or protection payments made along the way.

1. Minimum Outcome: Wrap Capital Protection provides clients with a Minimum Outcome at maturity. This is initially based on their original investment but can increase over time if their investment performs well. Automatic adjustments are made each quarter or you can lock in growth for your client manually.

If a client decides to cancel their investment before the maturity date they will receive the value of their Protection Portfolio. This includes the value of their Investment Fund and the BT Capital Protection Fund and can be less than the Minimum Outcome before the end of the term. The Minimum Outcome will increase for additional investments made to the Protection Portfolio, and decrease for withdrawals. If distributions from your client's Investment Fund are taken from your client's Protection Portfolio as cash, they will be treated as withdrawals and reduce the Minimum Outcome.

2. Rebalancing: The client's investment is split between their chosen Investment Fund and the BT Capital Protection Fund.

Rebalancing is carried out according to a formula. It is designed only to ensure Wrap Capital Protection delivers at least your client's Minimum Outcome at the end of the term, by managing your client's exposure to their Investment Fund and the BT Capital Protection Fund.

Clients may benefit from rebalancing during the term if markets fall, because the BT Capital Protection Fund provides a defensive return. However, if markets rise, clients might not receive all of the upside due to the fees and costs they pay as well as any allocation to the BT Capital Protection Fund.

3. Protection Payment: The BT Capital Protection Fund also provides an additional layer of protection through the protection contract the fund holds with Deutsche Bank.

Under the protection contract, where it is not possible to rebalance your client's investment between the Investment Fund and the BT Capital Protection Fund in a timely manner (for example when the unit price drops significantly in one day), a protection payment may be required to be paid to your client to ensure the Minimum Outcome can be achieved at the end of the term. Please note your clients do not have a direct relationship with Deutsche Bank.

The information shown on this site is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed hereto.